annual report 2016 › Annual Report 2016 Page references Overview 02 – 17 + Further information Facts and figures 02 Letter to the Shareholders 04 HOCHDORF share performance 08 ! Important data/fact Business model, strategy and markets 10 Interview: «With the forward integration we are also now responsible for brands» 14 Insight Cereals & Ingredients 18 – 23 HOCHDORF Group Key figures 24 – 26 Financial report 24 HOCHDORF Group key figures 26 Business divisions 27 – 37 Dairy Ingredients 28 Baby Care 32 Cereals & Ingredients 35 Corporate Governance 39 – 50 Group structure and shareholders 40 Capital structure 40 Board of Directors 41 Group Management 46 Compensation, participations, loans 48 Shareholders´ rights of co-determination 48 Change of control and defensive measures 49 Auditor 49 Information policy 49 Remuneration report 51 – 58 Remuneration report 52 Report of the Auditor on the 2016 Remuneration Report 57 Annual financial statement HOCHDORF Group 59 – 89 Annual financial statement HOCHDORF Holding Ltd 90 – 98 Corporate Social Responsibility 99 – 107 Adresses and imprint 108 Stand 14.03.2017 Facts and figures In 2016 the HOCHDORF Group worked on the implementation of strategy 2016 – 2020. Important elements of this include forward integration and the development and marketing of new high added-value products. With the majority holding in Pharmalys Laboratories SA, HOCHDORF took an impor- tant step towards the successful implementation of the strategy. Earnings in 2016 reached record figures thanks to the measures initiated earlier. The HOCHDORF Group The HOCHDORF Group, which was founded in 1895 and has its headquarters in Hochdorf (near Lucerne) main- tains two milk plants in Switzerland and one milk plant in both Lithuania and Germany (60 % stake). In addition, high-quality infant formula is produced at the Swiss milk plants. Furthermore, HOCHDORF has a cereal plant in Switzerland (processing wheat germ) and an oil mill in Germany. As of the end of 2016, HOCHDORF has a 51 % majority holding in the Pharmalys Group. Pharmalys sells infant formula among other things, under the brands Primalac and Swisslac, in over 40 countries. HOCHDORF is among the leading food companies in Switzerland and at 31 December 2016 had more than 630 employees worldwide. HOCHDORF products contribute towards health and well-being, from babies to senior citizens. The products are sold to the food industry and to the wholesale and retail trade in over 90 countries. Our strategic objective The HOCHDORF Group is an independent global company operating in the business areas Dairy Ingredients, Baby Care and Cereals & Ingredients. As a Swiss food company we are guided by the Swiss values of «reliability», «qual- ity» and «precision». As a company operating in niche markets, it is HOCHDORF’s aim to keep the agility of a medium-sized company and conquer new markets by showing the necessary courage. The HOCHDORF Group focuses its products on premium markets and offers its customers a correspondingly high standard of service. In the medium term, HOCHDORF is aiming for growth by offering products with high added value such as top quality milk derivatives, infant formula and healthy children’s foods. To improve its earnings figures HOCHDORF is aiming for forward integration in terms of both sales and products. Financial data Facts and figures | 01 2 HOCHDORF Annual Report 2016 Stand 14.03.2017 Key indicators in the annual report Key indicators 2016 2015 2014 2013 Processed milk and whey in tonnes 741,769 761,240 506,963 455,647 Products sold in tonnes 237,054 242,821 99,155 91,699 Total assets (in CHF 1,000) 425,474 340,396 331,109 243,485 Equity ratio 10.80 % 56.60 % 43.20 % 42.60 % Cash flow from operating activities (in CHF 1,000) 24,227 18,134 20,546 18,196 Market capitalisation (in CHF 1,000) 444,417 242,044 147,787 93,600 Share price at 31.12. in CHF 309.75 168.70 138.00 104.00 Earnings per share in CHF 14.12 11.73 17.45 6.95 Staffing levels at 31.12. 633 625 573 362 Market data Share prices and charts 02 | Facts and figures Facts and figures 3 Stand 20.03.2017 Dear Shareholders In this letter to the shareholders, we will address two aspects of the strategy and its implementation › Page 99 et seq. in depth: the acquisition of the majority stake in the Pharmalys Group and the planning and realisa- tion of the investments in Sulgen. Along with the standard content, you will find the sustainability Corporate Social report published every two years at the end of this annual report. We would like to start by report- Responsibility report ing on the solid earnings. Very good results achieved In comparison to business year 2015, the HOCHDORF Group can present some record earnings for 2016. › Earnings before interest and taxes (EBIT) were CHF 22.5 million or 4.1 % of the production revenue. Page 61 This number is quite impressive for a company that does business in the food industry, mostly in the Income statement business-to-business segment. Five years ago, in business year 2011, the HOCHDORF Group achieved an EBIT of just CHF 1.9 million or 0.5 % of the production revenue. Primarily, Swiss business contributed to the record-high result in 2016. The foreign factories felt the full force of the stormy weather in the milk market due to their product range. In an industry comparison, we have mastered the chal- lenging market situation on the international level quite well, however. The Group earnings of CHF 19.4 million are also at a record level (PY CHF 13.0 million). › Page 96 On account of our success and in light of the major investments, we propose to the Annual Gen- Proposed appropriation eral Meeting a slight increase of ten centimes in the dividend payout to CHF 3.80. This will let us of retained earnings continue what we consider to be a cautious dividend policy aimed at sustainability. › Majority stake in Pharmalys Page 32 Forward integration, and thus taking a step closer to the end consumer, is a central part of the strat- Baby Care report egy set at the beginning of 2016. This step is important for a sustainable improvement in the earn- ings of HOCHDORF. After intensive negotiations, we signed the contract on 25 March 2016. On 19 December 2016, the contract was finalised after an extraordinary Annual General Meeting and the › fulfilment of additional mutual closing conditions. As a result, HOCHDORF Holding Ltd has acquired Page 41 a 51 % stake in Pharmalys Laboratories SA and the jointly formed Pharmalys Africa S.à.r.l. The investment in Pharmalys Tunisie S.à.r.l. will start at 49 %. HOCHDORF will acquire the remaining Group structure 2 % after completing an «approval process» by the state of Tunisia. For the financing of the majority stake, HOCHDORF Holding Ltd will issue a three-year mandatory ! convertible bond for CHF 218.49 million at the end of the March 2017. HOCHDORF will provide information about the details of the mandatory convertible bond in due time. OVERVIEW | 01 4 HOCHDORF Annual Report 2016 Stand 20.03.2017 HOCHDORF in new realms › By taking a step closer to the end consumer, the HOCHDORF Group is not navigating in new waters Page 14 et seq. from a historical perspective. In its 120 year history, the HOCHDORF Group has repeatedly worked Interview with closer to or farther from the market for end consumers, for example, with the brand Heliomalt or even Thomas Eisenring earlier with the brand Bébé. For us, the integration of Pharmalys means: «Never stop a running engine!» On the market side, Pharmalys must continue to run just as it did before. HOCHDORF’s task is to create more structure in the administrative area, sell existing products that are of interest to the markets through the Pharmalys distribution channels and introduce the business model in new mar- kets. In addition, meaningful reporting systems must be established. The respecitve integration work has been underway since the beginning of 2017. High performance spray tower line At our location in Sulgen, we have been not only producing, but also building for some time. The high rack storage area has been covered since the end of 2016 and the installation of the technical equipment has begun. To enable us to cover future demand for Swiss-made infant formula, the Board of Directors approved the construction of an additional spray tower line for infant formula › with a performance of roughly 32,000 tonnes and the installation of additional can filling lines and a Page 28 et seq. high rack storage area in Sulgen. The work is being planned, and the handover of the new lines to Report of the three production continues to be scheduled for the first quarter of 2018. The staff required for the line will business areas be recruited this business year and trained at the existing spray tower line. The project for increasing capacity at the Hochdorf site is running on schedule. The new lines will be available for the coming milk season. In Prenzlau, an investment was made in a higher performance filing line for buttermilk and put into operation as scheduled. In Marbach, the expansion of produc- tion capacities was completed this spring. 02 | Letter to the Shareholders Letter to the Shareholders 5 Stand 20.03.2017 Strategy will continue With the new strategy adopted at the beginning of 2016, the HOCHDORF Group set significantly higher target margins. The forward integration and the product offensive are two important points that must be pursued persistently. In the case of the forward integration, we have decided to move for- ward with one customer to achieve the goals more quickly.